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Bull of the Day: Kohl's (KSS)

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Headquartered in Menomonee Falls, WI, Kohl’s Corp. (KSS - Free Report) is the number two department store chain in the U.S. Its stores offer moderately-priced apparel, footwear, and accessories for women, men and kids; beauty items; and home décor. Kohl’s currently operates over 1,100 stores across 49 states, as well as kohls.com and the Kohl’s smartphone app.

Q2 Earnings Recap

Total revenue hit $4.45 billion, with net sales of $4.22 billion, growing over 30% year-over-year; the company’s top line also surpassed revenue and sales for Q2 2019.

Gross margin surged 42.5% compared to 33.1% in the prior-year period and 38.3% in the second quarter of 2019 thanks to Kohl’s ability to cut back on promotions as inventory remains low.

As a result, earnings showed impressive growth. The bottom line hit a record of $2.48 per share, or over twice the analyst consensus of $1.16. This, in turn, allowed the department store to generate a hefty $1.25 billion of free cash flow last quarter.

Kohl’s also repurchased $255 million of stock in Q2.

Because of its blowout second quarter, management raised its full-year outlook for the second time and now expects to generate adjusted EPS between $5.80 and $6.10 per share (vs. its previous forecast of $3.80 and $4.20 per share), which would be another record.

Could KSS Break Out?

Over the past one year, shares of KSS have risen over 147% compared to the S&P 500’s gain of 31.9%. Earnings estimates have climbed as well, making the retailer a Zacks Rank #1 (Strong Buy) right now.

For the current fiscal year, eight analysts have revised their bottom-line estimate upwards in the last 60 days, and the Zacks Consensus Estimate has moved up from $4.04 per share to $6.09 per share. Earnings are expected to see triple-digit growth of more than 600% for fiscal 2022, with 2023 continuing the positive earnings growth trend.

Considering Kohl’s latest guidance, share trade at a bargain level of about 9.2X forward earnings, especially given its very strong balance sheet and growth outlook.

Additionally, the company just began the rollout of its partnership with beauty behemoth Sephora, a promising partnership that should boost its top line over the next few years. Kohl’s has also added popular brands like Eddie Bauer and Tommy Hilfiger to its product mix.

If you’re an investor searching for a retail stock to add to your portfolio, make sure to keep KSS on your shortlist.


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